Netflix Rival Roku Channel Worth $1B: Needham

Roku Channel, the free streaming content provider from Roku Inc. (ROKU) that competes against the likes of Netflix Inc. (NFLX), could be worth $1 billion and may draw attention from would-be suitors.

Roku’s move to make its advertising-supported Roku Channel, which streams movies and live news available over the internet for computers and mobile devices, helps Roku Channel near a $1 billion valuation, according to Needham & Co.

In a research note covered by MarketWatch, Needham analyst Laura Martin said by moving its service to the web Roku should increase the number of active users and thus its revenue prospects. Prior to bringing Roku Channel to the internet, it was only accessible through an app or via its operating system software for TVs. (See more: Roku to Jump 20% Thanks to New Offerings: Bulls.)

Expanding Market Share Should Boost Valuation

According to Martin, $650 million of the $1 billion valuation will come from market share expansion while $430 million will be derived from doubling ad revenue per viewer. With a valuation of $1 billion, it would represent close to 20% of Roku's current market capitalization of $5.8 billion making it an attractive target for suitors, Martin argued in the report. She pointed to Walt Disney Co,’s (DIS) acquisition of BamTech, which she noted is smaller than Roku. About a year ago Disney announced plans to spend $1.58 billion to acquire a majority stake in BAMTech, a streaming technology company from MLBAM, the interactive media and internet unit of Major League Baseball. (See also: Roku Surges 68% After IPO: Tech Titans at Risk?)

Roku Shares Ad Revenue With Movie Studios

What makes Roku Channel attractive to big movie studios including MGM, Lions Gate, and Warner Bros. is that it makes money from a catalog of older movies that otherwise wouldn’t create revenue, according to MarketWatch. All of the content on the channel is approved by Roku with revenue from ads being evenly split with the owners of the content. Roku is also able to sell ads on TVs that have the Roku Channel app but don’t use its TV OS, noted the report.

The call out of Needham comes after Roku surpassed the Wall Street consensus for earnings and revenue during the second quarter, which it reported earlier this week, adding 22 million active accounts. During the three months ended in June, subscriber additions increased 46% while streaming hours were up 57% to 5.5 billion hours. Roku said average revenue per user increased 48% to $16.60. Revenue came in at $156.8 million, blowing past the $141.5 million Wall Street was looking for. For the second quarter, it had a profit of $526 million. Excluding items it broke even, besting the $0.15 a share loss consensus as well. For the full year it expects revenue of $710 also higher than the $698 million Wall Street was forecasting, reported CNBC. On Thursday (August 9), a day after the earnings report, shares of Roku closed up 21.3% or $10.07 to $57.32

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